For most students, loans are just a part of life. Without student loans, most of us couldn’t go to school, complete a degree, and find a good job. In fact, more than two-thirds of students attending college today will need to borrow student loans. Luckily, many student loans offer relatively low-interest rates and borrower-friendly repayment options. But, loan limits do apply, as there are limits to the amount you can borrow by loan type and only up to the cost of education. Make sure you don’t borrow more than your total education cost as it could prevent you from receiving some of the gift aid you’re eligible for. Federal loans provided by the government are usually the first choice for student borrowers.
To cover college costs after exhausting federal loan funding, institutional loans, which are offered through your school, and private loans offered by private loan lenders are available. A direct loan is a common federal loan. The interest rate on a direct loan is set by the federal government and has the same terms and conditions which are also set by the government. While the rate may change from one year to the next, the interest rate you’re given is fixed for the life of your loan. Direct loans come in two different types: subsidized, and unsubsidized.
- Subsidized means that no interest is accruing while you’re in school, in a grace period, or when you have authorized deferment and the government is actually paying the interest on these loans during that time for you. However, there ARE a few exceptions to when the government pays the interest on your subsidized loans. Be sure to check with your loan servicer if you’re not sure whether your loan’s interest will be subsidized.
- On the other hand, If you have an unsubsidized Direct Loan you are responsible for all of the interest that accrues on these loans and that interest starts accruing as soon as the funds are disbursed.
The basic life cycle of a federal direct loan starts when you’re in the school of course, but in-school status means different things to different schools so just make sure you maintain your school’s interpretation of at least half-time status. The definition of half-time is determined by your school. If you are unsure if you qualify for at least half-time, please confirm with your school administrators. During the in-school period, no payments are required, and interest will accrue only on unsubsidized loans.
Once you’re done with school or drop below half-time status, your direct loans go into their six-month grace period. Your grace period is an automatic time frame in which no payments are required. Following the six-month grace period, after you’re done with school, or drop below half-time status, the loan goes into repayment. At this point, payments will be required both on the interest that has accrued on the loan, as well as on the principal balance.
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